The biotech sector has been rallying as of late, evidenced by the S&P 500 Biotechnology Index up close to 9% within the past month. Of course, as we’ve seen so far in 2022, rallies are difficult to sustain given the market uncertainty.
Interest rates will continue to be a prime focus in the capital markets moving through the rest of 2022’s second half. The U.S. Federal Reserve’s aggressive tightening already has the markets worried that a recession could be forthcoming, which won’t make the biotech sector immune to that economic backdrop.
Like the rest of the equities market, biotech has been susceptible to the ebbs and flows of inflation fears. However, it’s fared much better than the broader S&P 500, which is down about 20% while the S&P Biotechnology sector is actually up about 2.5%.
Despite the recent rally, nothing material has changed that would make an investor think that a sustained rally could occur, according to a Barron’s report. “Biotech’s rally hasn’t let up, but without any clear changes in the setup for the sector, it is hard to have confidence that the longer-term bear market in those stocks is really over,” the report said.
“Very little change to [the] underlying sector backdrop,” Oppenheimer healthcare equity strategist Jared Holz wrote on Thursday. “This is to say, clinical results and market opportunities are consistent with that of a month ago. Some encouraging, some not.”
Up 60% in the Past Month
With the recent strength in biotech, one fund to consider is the Direxion Daily S&P Biotech Bull 3x Shares (LABU). With its triple leverage capability, it’s up 60% in the past month.
LABU seeks daily investment results of 300% of the daily performance of the S&P Biotechnology Select Industry Index. The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
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